NEW YORK, Oct 24 In the summer of 2011, Yahoo
Inc's (YHOO.O) board decided enough was enough. Directors had
seen the Internet giant’s stock languish, and the answers they
got from Carol Bartz, chief executive at the time, fell short of
their expectations.

So, the board held a final meeting in Los Angeles, away from
Yahoo's Silicon Valley headquarters, to review the company's
progress, a source familiar with the matter said.

One of their conclusions? Fire Bartz, the source said.

Such scenes are relatively rare, but could be played out
more frequently across corporate America as companies
increasingly split the roles of chairman and CEO, and heed
regulatory pressure to police their companies, U.S. public
company directors said in interviews.

Last week, Citigroup Inc (C.N) Chief Executive Vikram Pandit
resigned abruptly after a clash with the board and the bank’s
chairman, Michael O'Neill, a day after it reported
better-than-expected results. Citi declined to comment.

Other marquee names, such as insurer American International
Group Inc (AIG.N) and technology giant Hewlett-Packard Co
(HPQ.N), have in the past few years also seen discord between
management and independent directors spill into the open,
resulting in either the CEO or chairman leaving the company.

Former Yahoo Chairman Roy Bostock himself left the company's
board earlier this year after pressure from shareholder Dan
Loeb, of hedge fund Third Point LLC, and other investors.

VIRTUAL COUNTRY CLUB

Directors say these battles, and an increasing number of
boards asserting themselves, may signal the ultimate end of the
corporate board as a virtual country club for the chief
executive's friends.

"There is a growing sense of responsibility by the board
that they are indeed in charge of the company. They are not just
there as friends of the CEO giving advice. They are, in fact,
responsible for making sure that the company is on the right
track," said Steve Miller, chairman of AIG and director of
software maker Symantec Corp (SYMC.O).

Miller became chairman of AIG after a clash between his
predecessor, Harvey Golub, and the company’s CEO Bob Benmosche
led Golub to quit.

Miller, who is also the CEO of aircraft maker Hawker
Beechcraft Inc, declined to talk specifically about AIG, but has
since smoothed over the relationship between the AIG board and
management.

Indeed, there's a plethora of reasons for boards to take
their jobs more seriously, directors say. These include the
lessons from the financial crisis of 2008, increased regulatory
scrutiny, investor demands to split the roles of chairman and
CEO, and fear of investor lawsuits.

"Clashes with management are more likely to occur when there
are real difficulties and public scrutiny," said Hal Scott, a
director of investment bank Lazard Ltd (LAZ.N).

"It's a natural thing as a board member, when there’s a lot
of attention being focused on your company and people are sort
of saying, 'Hey board what are you doing about this?'" he said.

The resulting change, governance experts say, is good for
investors.

CHANGE IS GOOD

GMI Ratings, a corporate governance ratings agency, reported
in June that companies that split the chairman and CEO roles
post five-year returns that are 28 percent higher than companies
where the same person holds both jobs. GMI also found that
companies with a combined chairman and CEO role pay that person
nearly double the average for someone who is only CEO.

In its most recent annual report on corporate governance
among the S&P 500 companies, executive search firm Spencer
Stuart found that 21 percent of the companies' boards had an
independent chairman in 2011, up from 10 percent in 2006. An
independent chairman is someone who has not worked for the
company and does not have business ties with it.

Over the same period, the percentage of companies whose CEO
was also chairman fell to 59 percent in 2011, from 67 percent.

"They (boards) are becoming more assertive because you have
non-executive chairmen who are taking leadership roles,” a
long-time director at a major financial services company said.
“There is an accountability factor that to the shareholders and
to other stakeholders is very important.”

The new scrutiny that a more questioning board brings can
make CEOs uncomfortable, directors say, and force them to look
over their shoulders while setting corporate strategy.

That may mean fewer bold decisions, which, for a business,
can sometimes be damaging.

And if a chief executive leaves abruptly, as Pandit did at
Citigroup, it can also lead to uncertainty and hurt employee
morale.

"What will be the impact of that in all sorts of businesses
at Citi, and people’s uncertainty about what’s going on there,
and whether they can have confidence in management? This kind of
open fight at this level, I think, is very bad for the company,”
Lazard’s Scott said.

"The board and the management won’t agree on everything, but
you would hope they would be able to work it out and reach some
consensus," he said.

WATERSHED MOMENT

To be sure, there are plenty of companies that have a CEO
who's also chairman, and whose board plays a passive adviser
that defers to the chief. These omnipotent heads may justify the
status quo at their companies by pointing to examples of open
warfare in other companies where the roles are split.

But, more and more prominent examples of independent
directors asserting themselves could strengthen the hands of
investors and corporate governance advocates looking for change.

"They (CEOs) are fighting, but I think it is futile. The
trend here is definitely to divide the position," the financial
services company director said. "I don’t think there is anything
wrong in second-guessing the CEO."

AIG's Miller, who has served on more than a dozen boards and
is one of the country's top restructuring experts, said the
watershed moment that spurred change in boards' attitudes came
when energy group Enron collapsed in 2001.

That prompted directors across corporate America to learn
from the mistakes made by the board of the one-time energy
trading giant.

"I look at those board members, and they were some of the
best and the brightest people I have ever run into in my
business life. And somehow they let that situation get away from
them," Miller said.

"Enron was a big spur to improvement in the behavior of
boards, and it wasn’t because some regulator wrote it down; it
was the 'oh my god' factor."

Directors also cited increased regulatory scrutiny after the
financial crisis of 2008 and the presence of private equity and
investor nominees on boards, who bring more of an activist
perspective.

"If you think about who populated boards in the 1990s, it
wasn't people who had gone through PE. People now on boards are
those who think they can drive value with activism," said Devon
Archer, a director at potash company Prospect Global Resources
Inc PGRX.O.

The financial services director said regulatory pressures
were foremost in directors' minds these days.

"It's the embarrassment factor," the director said. "It's
the regulatory considerations. You don't want government coming
down on you feeling that you are not discharging your duties.
It's the press exposure. There is a sunlight to all of this
that's very fascinating."

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